All posts tagged bond

The U.K. government’s second gilt auction of the week also met with strong demand Thursday; evidence that U.K. government bonds are still seen as safe havens as debt troubles in the euro zone ‘periphery’ continue to worry investors, data from the U.K. Debt Management Office showed.

The £2 billion reopening of the 4.50% 2034 Treasury gilt was covered 1.87 times, down from 2.08 times at the previous auction of this bond, held February 9.

However, the yield “tail”, the difference between the average and highest accepted yields, a gauge of demand, narrowed to a very tight 0.1 basis point Thursday, versus the 0.3 basis point outcome at the previous tender.

Are the doors of Europe’s corporate-bond market creaking open again? Germany’s Deutsche Bank and a few other financials are braving the waters to raise cash after staying on the sidelines for weeks.

Deutsche Bank is looking to raise about €250 million from the private market by selling new bonds. That would be the first euro-denominated bank bond in May, according to Dow Jones Newswires.

European companies have stopped raising funds in the corporate-bond market in recent weeks as concerns about Europe’s debt and banking troubles have rattled global markets. Analysts at French bank Societe Generale estimate that little more than€1 billion of new corporate bonds have been sold this month.

Some European countries struggle to raise cash from the private markets due to their debt problems. Germany, on the other hand, bothers investors for the opposite reason: Demand for its bonds is so great that investors no longer want to pay the high prices.

On Wednesday, Germany’s debt managers failed to raise the full €7 billion from investors scheduled, ending up selling only €5.4 billion in bonds with the rest being retained.

The problem: The country is forcing investors to accept a measly interest rate of 1.47% for five-year bonds compared with the 2.2% rate at the last similar auction. The 1.47% is right around current market levels.

Portugal’s five-year bond auction went well Wednesday, with the debt agency selling the maximum intended €1 billion, says ING strategist Wilson Chin after the auction which had a bid-to-cover ratio of 1.8.

This has been the country’s second successful bond auction since the EU/IMF/ECB bailout package [agreed on May 10], and this should improve trust in periphery, “which at the moment the market really needs,” he says.

The average yield was 3.701% vs 3.498% at the previous auction. “The spread to bunds of course is very wide, which should have enticed investors,” Mr. Chin adds.

One day after Portugal successfully sold €1 billion in bonds to investors, Italy has done much the same, unloading €5 billion of debt in another signal that Europe’s weekend rescue package is helping to prevent a freeze in its credit markets. Investors shouldn’t get too optimistic though.

Like crisis-racked Greece, Italy has a heavy debt load relative to its gross domestic product, which makes paying back debt more difficult. However, Italy’s budget deficit is much more manageable than that of other countries on Europe’s fringe. It’s also the euro group’s third-biggest economy, while Greece adds only about 2.5% to the zone’s overall GDP. For these reasons, investors have been more sanguine about Italy.

Greece’s debt troubles are sparking some speculation about a possible funding crisis in Britain, another high-deficit country. Here are some reasons to worry — but also why Britain isn’t another Greece.

First, the reasons to worry. While the U.K. government’s debts were low compared with other advanced countries before the global recession, efforts by Prime Minister Gordon Brown’s ruling Labour party to revive the economy and rescue the country’s sickened banks did significantly hurt the public purse.

Every little bit helps. Spain, one of the debt-riddled euro-zone countries under the spotlight, announced that its five billion euro, 15-year bond offering was heavily oversubcribed.

Investors registered about 13.5 billion euro in interest in the deal which is set to price later Wednesday. The strong Spanish offering comes on the heels of a similarly solid offering from Ireland on Tuesday.

The euro, while a touch lower today at $1.37, has bounced off of recent lows as the focus on Greece’s fiscal woes has eased a bit. Sentiment remains negative for the euro, but a few more solid bond offerings from the PIGS and that view might change.

A big test, of course, is up ahead. Greece says it plans to come to market later this month or early next month with a 10-year bond offering. Scrutiny is bound to be intense.

There’s a lot of angst over whether countries on the periphery of Europe’s currency zone will be able to pay their debts on time. So how much do Greece, Portugal and Spain owe, exactly?

According to analysts at Italian bank UniCredit, the Greek government has two debt obligations coming due soon: an 8.2 billion euro bond due April 20 and an eight billion euro bond due May 19. Greek officials have said they have sufficient cash to make payments through April, having raised eight billion euros ($11.02 billion) in the bond market recently.

After May, Greece has only about one billion euros of payments to make related to maturing debt this year, UniCredit says. However, it has a roughly 31 billion euro 2010 government budget deficit to finance, which is where the real crunch probably will come.

Are financial markets getting ahead of themselves in betting on a European Union bailout of Greece? Many analysts and investors seem to think so, and the euro’s troubles this morning aren’t a good sign.

The pan-European Dow Jones Stoxx 600 Index is up 0.7% Wednesday to 240.91, while shares in Greece, Spain and Portugal have gained 3.7%, 1.1% and 2.2%, respectively. The cost to insure against a sovereign debt default in Greece and Portugal is also lower today. The reason: Germany is considering a plan with its European partners to offer Greece and other troubled euro area members financial assistance.

The confidence in European markets this morning makes sense: Wall Street soared yesterday on bailout hopes after European markets closed with only minor gains, which means Europe has some catching up to do.

Financial markets in Europe have steadied in anticipation of a European Union summit later this week. To add a small bit of dramatic flair, the European Central Bank let it be known that its President, Jean-Claude Trichet, would be jetting back early from Australia to be in attendance.

As investors have grappled with Greece’s fiscal problems, policy makers have tried several Kabuki moves to calm markets — Mr. Trichet’s dash back is but the latest. And for now this bit of posturing is working. The cost of sovereign debt default insurance has fallen a bit, the euro has strengthened and stock markets are a smidge higher.

Could Britain fall victim to the same financing fears that have hit fiscally-challenged Greece? Today’s successful sale of a government bond by the U.K. Treasury highlights how different the situations of the two countries are.

This morning, the Treasury’s Debt Management Office sold two billion pounds of government bonds that mature in September 2034. Investor bids wrapped up around 10:30 a.m., and the result emerged shortly thereafter: The sale went without a hitch.

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